Posted on: 5/11/2017
By Cassie Fish, http://cassandrafish.com
Jun LC futures have lost an astounding $13 in one week. A gap on the spot daily chart, left by the Apr LC, between $120.47 to $120.65 looks likely to get filled, as the market seeks support at some level.
The charts look especially ugly after the market posted a second outside day today in a week, plummeting to new lows again. The market seems intent on retracing back to the level that the rally began in earnest, the $118 area. Futures are far from being oversold.
Futures have left cash behind for now, though cash prices are a good $6-8 lower than a week ago. Now that packers have regained control of their inventory position, they will step the live market down every week they can, widening their operating margin.
At the same time, packers are ramming and jamming the cutout to new highs, pushing some SKU’s to record highs. Such a desperation rally will result in a violent correction at some point, likely beginning next week.
Cattle feeders are back on their heels trying to acclimate to their dramatic change of fortune in such a short time frame. There aren’t a lot of cattle that need to be sold immediately and many cattle could use another 2-3 weeks on feed, but cattle feeders do have a lot of cattle on feed with summer out-dates and what price these cattle will trade at down the road is a guess. Summer low predictions range from $110-124.
The broader question of whether the historically wide basis held by this market most of 2017 will continue or begin to narrow. This topic is getting a lot of conversation but results in little consensus. What is agreed upon is that if and when basis narrows dramatically, it would set off a chain of events that would impact everyone who trades this market, especially those managing physical inventory.
The Beef will return on Monday.